But annuities have changed markedly in the past five years. For the right individuals at the right time, an annuity can be the right investment needed to protect a comfortable retirement for you or your spouse
(PRWEB) June 30, 2005
Most people have heard of annuities for lottery winners, or tax sheltered annuities purchased by teachers to supplement pension income, or the annuity Aunt Angela bought 20 years ago from a "nice fella", that pays her monthly now.
Most people have probably heard annuities are also a bad deal too.
"But annuities have changed markedly in the past five years. For the right individuals at the right time, an annuity can be the right investment needed to protect a comfortable retirement for you or your spouse," says Paul J. Mauro CLU ChFc, CEO of Legacy Financial Advisors, which just celebrated 30 years in business in Milford MA (http://www.lfsadvisors.com). MauroÂs firm specializes in estate plans and retirement income planning for clients age 50-plus who have moderate to large accounts.
"HereÂs an example of an annuity working well, says Mauro, adding "A client received a death benefit check recently on two accounts her husband had opened in 1999. On the $100,000 invested in various mutual funds, she collected $90,000 since the market was down a bit. On the $100,000 annuity account there was just $89,000 in the account, but she collected the $125,000 death benefit guarantee."
Explains Mauro, "Annuities now mean just a contract with an insurance company to provide a menu of extra benefits. These may include a death benefit, a minimum rate of return guarantee, a principal guarantee, a lock in of investment profits, and monthly income.
Here is Paul MauroÂs advice on annuities today.
Who are annuities for? Most annuity buyers are over age 50 and are often the choice for those who want to convert their asset allocation to an income allocation for retirement, since many investments that accumulate well, do not distribute well.
Individuals can do better elsewhere. "If you consider the true cost of the mortality guarantee plus the real cost of the principal guarantee you cannot do any better period," says Mauro.
What to watch for: Beware of high interest offers from low rated insurance companies. Never do business with a person who can just offer one type of product. "Find qualified professional financial advisors. For guidelines go to the AARP guidelines posted on its Website," says Mauro.
Annuity expenses are too high. Bunk. The average cost of all the mutual funds in the Morningstar database is about 2.85% with all fees and costs included. The average cost of a modern variable annuity is about 2.95% with many extra benefits.
Commissions and sales costs are too high. Bunk. On quality products, the sales costs are reasonable and comparable to real estate commissions. Compared to many money-managed accounts which cost 1% annually after 10 years an annuity is less costly.
What about losing control of one's money? "Bunk. With a quality fixed annuity over five or 10 years, the charges are structured like a 60-month or 120 month CD. There is a charge to cancel early. These total surrender charges decline to zero. However, with a quality annuity, -- even after just 30 days -- one can withdraw 10%, 15% and even 20% per year with no cost. You cannot do this with a CD," notes Mauro.
Concludes Mauro, "Annuities are like the Fourth of July fireworks -- beautiful in the right hands or explosive in the wrong ones!"
Legacy Financial Advisors Inc. (http://www.lfsadvisors.com) has extensive experience in helping families plan for the issues of aging and was featured in the PBS special "And Thou Shalt Honor" broadcast in November 2004 on WGBH-TV.